Rogue Corporations: Inside Australia’s biggest business scandals

By Quentin Beresford

Crown Resorts, the Bond Group, James Hardie, HIH Insurance, Geoffrey Edelsten's Allied Medical Group, 7-Eleven and Rio Tinto, the list goes on...

Australia has suffered from the continual sting of business scandals since corporate cowboys like Alan Bond and Christopher Skase wrought so much damage during the 1980s. Since then, hundreds of thousands of Australians have been affected, with many left traumatised when corporations collapse due to gross mismanagement and profits being put before people.

Award-winning author Quentin Beresford takes us inside corporate Australia's highest-profile scandals and the factors that drive them — the rise of celebrity CEOs, timid regulators, inept boards, the murky links between big business, governments, banks, media and lobby groups — and explores a path towards higher ethical standards from organisations. It's a wild ride into the heart of corporate Australia.

'There have been too many Australian corporate scandals to keep up with in recent years, which makes Rogue Corporations so compelling —Quentin Beresford ties them all together in a powerful narrative.' —Stephen Mayne, journalist, publisher, shareholder activist and founder of Crikey, the online newspaper

• Language: English
• Publisher: NewSouth
• Release date: Nov 1, 2023
• ISBN: 9781742238852

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Cover image for Rogue Corporations: Inside Australia’s biggest business scandals, by Quentin Beresford

ROGUE

CORPORATIONS

QUENTIN BERESFORD is an Adjunct Professor at Sunshine Coast University and the author of The Rise and Fall of Gunns Ltd, Adani and the War over Coal and Wounded Country (winner of the 2022 Queensland Premier’s Award for a work of state significance), all published by NewSouth.

ROGUE

CORPORATIONS

Inside Australia’s biggest business scandals

QUENTIN BERESFORD

Logo: NewSouth Publishing.

UNSW Press acknowledges the Bedegal people, the Traditional Owners of the unceded territory on which the Randwick and Kensington campuses of UNSW are situated, and recognises their continuing connection to Country and culture. We pay our respects to Bedegal Elders past and present.

A NewSouth book

Published by

NewSouth Publishing

University of New South Wales Press Ltd

University of New South Wales

Sydney NSW 2052

AUSTRALIA

https://unsw.press/

© Quentin Beresford 2023

First published 2023

This book is copyright. Apart from any fair dealing for the purpose of private study, research, criticism or review, as permitted under the Copyright Act, no part of this book may be reproduced by any process without written permission. Inquiries should be addressed to the publisher.

A catalogue record for this book is available from the National Library of Australia

Internal design Josephine Pajor-Markus

Cover design Luke Causby, Blue Cork

All reasonable efforts were taken to obtain permission to use copyright material reproduced in this book, but in some cases copyright could not be traced. The author welcomes information in this regard.

CONTENTS

Introduction

1Ripping off Medibank and Medicare: The rise of corporate medicine

2Empire of debt: Bond Corporation

3Dreams of Hollywood: Christopher Skase and Qintex

4‘The shambolic journey to oblivion’: HIH Insurance

5A plot from Machiavelli: James Hardie Industries

6The cult: Storm Financial

7Franchising exploitation: 7-Eleven

8Dark money: The Federal Group

9‘Horror stories’: Bupa Aged Care

10‘Free pass to paedophiles’: Westpac

11‘The climate change hoax’: News Corp

12Infiltrated by criminals: Crown Resorts

13Vandals: Rio Tinto and Juukan Gorge caves

Conclusion: Taming the beast

Acknowledgments

Notes

Bibliography

Index

INTRODUCTION

In the final months of 2022, Australia was rocked by a series of corporate scandals. Two involved the hacking of customers’ private data and its release onto the dark web. Telecommunications company Optus and private health insurer Medibank had to fend off an angry public as to why their sensitive personal data was not better protected from hackers. The consensus from technology experts was that these companies – along with corporate Australia generally – had been asleep at the wheel when it came to installing critical cybersecurity infrastructure. As Paul Smith, technology writer for the Australian Financial Review, commented acerbically, corporate Australia needed ‘to get a bedside clock with a louder alarm’ because it had been underfunding this area of business operations for at least a decade and ignoring the persistent warnings about the consequences.¹ The result was dire: hundreds of thousands of Australians experienced deep distress over the release, and potential misuse, of their private data. Most wanted an answer to the obvious question: why is such data held, ad infinitum, in the first place?

A third scandal to hit the media at much the same time occurred in an industry already plagued by scandal: casinos. Star Casino, which operated in both New South Wales and Queensland, was found not to be fit to hold a licence after an inquiry into the company’s operations found allegations of money-laundering, organised crime links and fraud at the company’s Sydney casino.

But any digging around will quickly reveal less publicised corporate outrages: everything from greenwashing emissions reduction targets to paying little or no tax despite eye-watering profits. It’s as if we’ve become immune from the reality that big corporations often play by their own rules.

It was ever thus. Anyone who remembers the 1980s will recall the tales of corporate malfeasance that flooded the news media. So-called entrepreneurs had, over the decade, ridden a wave of easy money and public adulation before driving a string of companies off the financial cliff. Billions were lost. Investors suffered. The nation’s reputation took a battering. The term ‘corporate cowboys’ entered the lexicon.

But in the wash-up of the eighties, only a few of the swashbuckling entrepreneurs went to jail; Alan Bond was the most high-profile example. Like him, many of the corporate cowboys were regarded as loveable rogues. Consequently, the warning signs about the dangers posed by corporations went unheeded.

What followed was an endless repetition of scenes from the film Wall Street played out in real life – business models driven by debt, glitz, greed and deceit. Many corporations simply went rogue.² The trail of disasters and destruction is a long one. Building manufacturer James Hardie lied about its commitment to asbestos victims, effectively trying to bin its responsibilities to provide on-going support for them. Lying was at the heart of the collapse of HIH Insurance. Owing billions, its implosion paralysed the insurance industry. Storm Financial conned people into borrowing against their assets to invest, on the pretext that they were safely providing for their retirement. Storm was only one of a number of dodgy financial services companies.

By the 2000s, unethical behaviour seemed baked into corporate business models. Convenience store giant 7-Eleven allegedly turned a blind eye to underpaying thousands of its vulnerable workers. It was only one of a number of iconic brands doing the same.

Bupa Aged Care collapsed the standards of care in its residential homes in the chase for profits. The toll of suffering across the sector led to the establishment of a royal commission. The ‘big wigs’ at Westpac were caught out inadvertently giving a green light to paedophiles. But all four big banks had developed rotten cultures. Another royal commission got under way. Crown Resorts knowingly built its business model around attracting criminal elements, becoming a haven for money-laundering. The company was just too big and powerful for authorities to notice and take action. Star got caught for doing much the same.

No company was more powerful than News Corp. After a decade of waging a campaign that denied climate change, it wanted the public to believe that the disastrous 2019–20 bushfires were caused by arsonists. And recently things have only worsened for the company’s tarnished reputation. And how could Rio Tinto top this list of ‘cowboy’ activity? By knowingly blowing up some of the most archeologically significant caves in the world. Preserving precious pre-history wasn’t a company priority.

Of course, there are many well-run and ethical companies operating in Australia. But there’s a dark side to corporate life, which this book explores.

I began researching bad corporation behaviour over a decade ago. In 2010, I became immersed in a project to unpack the power wielded by Gunns Ltd, Tasmania’s largest employer and Australia’s largest timber company. It was notorious for its capacity to wield power over many years at both state and federal levels. In 2003, it sought to add value to its forestry business by constructing a highly polluting mega pulp mill in the picturesque Tamar Valley in northern Tasmania. The proposal landed on the public as a fait accompli, the product of a secret meeting held between John Gay, Gunns’ burly and belligerent CEO and chair, and Premier Paul Lennon, a ‘hard man’ of right-wing state Labor politics.

In the end, Gunns Ltd blundered its way into bankruptcy, saving the Tamar Valley from a totally inappropriate development.

My next encounter with the stark realities of corporate power was on an even larger scale. From 2016, I watched with horrified fascination the relentless efforts of Indian conglomerate Adani Ltd to gain approval from both the Queensland and federal governments for a mega coal mine in the Galilee Basin in central Queensland.

As I researched Adani’s operations in India, alarm bells rang. Founder and chair Gautam Adani was a high-level political operator who, over decades, had benefitted from cosy, insider deals through his close relationship with Indian political strongman Narendra Modi, who went on to become India’s Prime Minister.³

Adani had poor governance standards in its Indian operations and a shocking reputation for flouting environmental laws in that country.⁴ Yet, the Queensland and federal governments embraced the conglomerate. The mine went ahead despite huge public protest.

This is the first book to explore corporate scandals as a continuous phenomenon of Australian society over the past four decades. Only by examining the older, well-known scandals side-by-side with the newer ones can we see the extent of the phenomenon. Taken together, hundreds of thousands of Australians have had their lives upended in the thirteen examples of corporate bad behaviour included in this book. So severe have many of the scandals been that faith in the free-market system has sometimes been called into question. And the impacts of individual scandals have often left a trail of traumatised victims. There’s no shrinking from the nature of the unethical behaviour involved; it’s frequently cold and calculating and contemptuous of anything but profits and status. Even though the consequences of bad corporate behaviour are there for all to see, the internal dynamics that produce this behaviour are often difficult to evaluate – unless a scandal has been the subject of official inquiry, in which case the public is let into the often sordid world of corporate culture. Such is the case in several of the examples in this book. In other cases, the dynamics of corporate culture remain opaque, making elusive any definitive judgments about some CEOs and boards.

Given the seriousness of the phenomenon of bad corporate culture, the book seeks to examine the causes of the continuous string of business scandals. It does so through a wide lens. Corporations, of course, sit within a system of power.

Australia has embraced the neo-liberal idea of allowing corporations maximum freedom with minimal responsibilities to wider society. Australia incorporated the so-called ‘Friedman doctrine’, the view associated with Nobel Prize–winning economist Milton Friedman, who, in the 1960s, argued that the only purpose of a corporation was to maximise shareholder wealth.⁵ This is the root cause of the scandals examined in the book. The Corporations Act 2001 stipulates that directors and executives should act in good faith and with care and diligence, that they should avoid improper use of information and position, and should disclose conflicts of interest. These obligations have not stopped the continual lurch into bad behaviour by many corporations.

In several of the case studies in this book, corporate scandals are linked to the power corporations wield, specifically their ability to capture key decision-making processes of the state to further their business models. In turn, this capacity undermines the integrity of the political system to uphold the public good. In a select number of cases, this process of undermining also assumes features of crony capitalism, a term used to describe the forging of close relations between powerful corporations and government. It’s designed to deliver mutual benefits to both parties: corporations get favourable treatment in developing projects and governments derive campaign donations, opportunities for post-political careers and the ability to trumpet delivering jobs.

The fact that both state capture and crony capitalism have become normalised features of certain areas of the economy is important in understanding why some corporations go rogue. Why has gambling become rampant in society? Why did standards in aged care collapse? Why did banks betray so many of their customers? Why did the financial services industry sink into a reputational hole?

Inevitably, the question arises as the extent to which, in chasing their business models, corporations have corrupted our politics. There’s no agreed definition of corruption but it’s generally seen to be a multi-layered phenomenon, beyond the simplified image of graft – politicians receiving brown paper bags stuffed with cash. None of the corporations examined in this book falls into this category. Rather, in some cases, corporations have undermined the integrity of our politics through a set of rules and practices legally set out for them. Although there are several exceptions, most of the corporations examined in the book played by these rules, but they overreach and scandals follow. My argument is that these rules – election donations, self-regulation, uncapped remuneration packages, weak lobbying regulations, the recruitment of retired politicians and limited public reporting requirements – are skewed in favour of corporate interests. Compounding the problem is weak enforcement of the limited provisions of the Corporations Act. With this framework in mind, I ask two overriding questions: What constitutes an ethical corporation? And why do so many fail to uphold community standards of ethical behaviour?

The book drills down into the scandals to explore the complex interplay of causes: the downside of free-market (neo-liberal) ideology; the ability of corporations to capture the state; the resort to unscrupulous corporate behaviour by senior management; and the timidity of regulators. Taken together, these elements suggest that the unspoken assumption has been that corporate interests must prevail for Australia to realise its potential.

Each scandal involved a unique interplay of causal factors; two or more factors can be found in each. In several, four are present. Within the interplay of underlying factors, I place special emphasis on the role played by corporate leaders. After all, they act like generals marshalling the troops and determining corporate strategy, often with huge ramifications for the nation. But why do boards so often fail to rein in aberrant CEOs and prevent corporations going bad? Most board members are establishment-type businessmen networked like a private club. I found board culture an intriguing issue to explore.

As mentioned, there is a plethora of corporate scandals from which to choose. The selection was based on several criteria. I wanted a historical perspective to trace patterns of causation. I wanted to draw on examples from different sectors of the economy to illustrate the breadth of the problem. I also wanted examples that highlight the serious consequences of unethical corporate behaviour. And lastly, I chose examples on the availability of source material.

Australia has been plagued by narcissistically inclined CEOs, toothless regulators, timid governments and shockingly negligent boards. But how do unethical behaviour and gross incompetence become entrenched in some of our largest and most iconic corporations? And how can we avoid the repetitious cycle of corporate scandals?

We can only begin to answer these questions by exploring the causes of the scandals that have dudded investors and cruelled the lives of countless ordinary Australians.

1

RIPPING OFF MEDIBANK AND MEDICARE: THE RISE OF CORPORATE MEDICINE

In October 2022, the ABC’s 7.30 program aired a report on fraud in Medicare, Australia’s widely supported universal health scheme. Investigative journalist Adele Ferguson, who has had a long and distinguished career exposing corporate abuse of power, interviewed experts in the medical profession who were talking publicly for the first time. She exposed a rotten underbelly in some of the nation’s corporate medical practices: billing dead people, fabricating medical records, billing for unnecessary services. The cost to the public purse from these rip-offs is simply staggering: $8 billion a year, or 30 per cent of Medicare’s total annual expenditure. Some practices were making hundreds of thousands in additional income. And they could get away with fraud on this scale because the scheme operated largely on an honour system: doctors were trusted to bill correctly. But as Ferguson’s report showed, some medical practices ‘see Medicare as a money pit, and they can just help themselves’.¹

Federal Health Minister Mark Butler didn’t waste any time setting up an independent inquiry into Medicare, which, at the time of writing, remains in progress. However, Ferguson’s exposé was a case of déjà vu. One of federal Labor’s most cherished reforms has been rorted from its very beginnings in the mid-1970s (as Medibank), its integrity undermined by the simultaneous rise of corporate medicine. Little had been done over the decades to learn the lessons about the fraudulent practices that developed and drove a significant section of the modern medical business model. And no figure was more central to either the rise of corporate medicine and its ethical failings than Geoffrey Edelsten. The flamboyant medical entrepreneur, a one-time darling of Australian media, was known for his gaudy tastes in cars, buxom young women and colourful clothing. He was a fixture of the 1980s fast money social set. Edelsten revolutionised medicine in Australia with his concept of 24-hour medical ‘super clinics’ in the mid-1980s. But Edelsten’s innovative corporate medical business model was driven by greed – profits came before patients. And, in turn, the greed drove his fraudulent behaviour. He was willing to rip off the public to enrich himself. The lack of enforceable regulations allowed the culture to flourish.

Edelsten is an intriguing character. Conveniently, perhaps, he liked to refer to himself as an enigma.² From the time he gained notoriety for his ground-breaking super clinics, Edelsten was in the forefront of the celebrity model of entrepreneurs. with a fixation on projecting his lavish lifestyle. Edelsten was especially known for his passion for high-end cars. He gushed at the joy his stable of cars brought him: a Porsche, a Lamborghini, a Ferrari, two Maseratis, a Rolls-Royce Corniche. Two sides to Edelsten became fused in the public mind: the show-off and the disruptive innovator.

Creating a new medical business model

For a noted show-off and fraudster, Edelsten came from a very conventional background. Born in 1943, he was the grandson of Jewish European refugees fleeing anti-semitism, and the son of successful small business owners. Esther and Hymie built Melbourne’s first lingerie chain. Obviously possessed of entrepreneurial flair, they were otherwise a conservative, private couple who winced at the publicity their son attracted.

One clue to Edelsten’s personality came from his oldest friend, David Wolff, who had known Edelsten since childhood. He had always known his friend as a charming person – ‘shy, unassuming, polite’. Why then did he court so much publicity, Wolff was asked by journalist Jane Cadzow, who was writing a profile on Edelsten. ‘Without sounding too harsh,’ Wolff explained, ‘it’s egomania.’³

Both Edelsten’s talents and flaws emerged in the early 1970s, when he and a fellow medical graduate, Tom Wenkart, together set out to revolutionise medicine. They had burst onto the business scene seemingly out of nowhere. At medical school they were known as ‘whiz kid doctors’.⁴ They shared similar personality traits: intelligence, charm and ambition. Edelsten claimed that he was the ideas man behind their partnership while Wenkart was ‘the fine detail partner’.⁵ Together they ‘wanted to focus on financial growth’ through medicine.⁶ But whereas Wenkart preferred to stay out of the limelight, with the consequence that little is known about his personal life, Edelsten craved attention.

Their new medical technology company, Preventicare, was ground-breaking and showed the best of entrepreneurial innovation. Some claimed it was a world-first. Doctors were offered the opportunity to rent ‘typewriter-like terminals’ from IBM linking them, in turn, to a $3.5 million computer at the IBM centre in Sydney. Doctors were able to courier pathology tests to specialists who would provide results at the doctor’s computer terminal within hours, rather than the weeks such test results typically took. It was essentially a system of health screening made possible by technological advances in testing and analysis, journalist Margaret Rice argued: ‘the new tools of diagnosis made a utopian dream – preventing illness by catching it before it started – seem possible’.⁷ The technology was ‘a thing of the future’, gushed one doctor at a seminar dedicated to the new approach.⁸ GPs could also store their patients’ records on the computerised system. With the equipment installed free of charge, along with a nurse to oversee the process, doctors started signing up in droves. Six hundred signed on in the first year of operation.⁹ The system had the significant advantage of efficiency by enhancing the role of the general practitioner at the centre of diagnosis and treatment.¹⁰

However, a few ‘old school’ medical practitioners believed Preventicare would increase the use of both medical and pathology services; that, in the name of efficiency, doctors might be tempted to ramp up their use of testing.¹¹ In her 2004 study of medical fraud, Kathryn Flynn, a PhD student and later lecturer at Wollongong University, found that Preventicare stimulated overservicing through Edelsten and Wenkart’s offer of inducements to general practitioners of computers and nursing staff. As a consequence, a spike occurred in the number of pathology tests.¹² But overservicing is a problematic concept because medicine is an inexact science and, as a consequence, the term is ambiguous. Edelsten and Wenkart sparked what turned into a decades-long debate about what constitutes medical fraud. Wenkart went on to found Macquarie Health and build it into a medical empire. He was never found to have engaged in overservicing.

In their joint business venture, Edelsten and Wenkart had big plans for the future. They wanted to sign on doctors across the country and they saw the opportunity to install their computer screening system in factories and pharmacies. However, they encountered a headwind: the company had grown so quickly that it had liquidity problems purchasing the expensive equipment.¹³ And private health funds baulked at paying out for rising services.¹⁴ Even before the introduction of Medibank in 1975, the private health industry was worried about the rising incidence of overservicing.¹⁵ Despite the glowing reception it received, Preventicare went into liquidation after fifteen months, although Wenkart revived the company several years later. Edelsten claimed that he sold out his share to Wenkart for several million dollars.¹⁶

Years later, Wenkart explained that while Edelsten was hard-working and dedicated, he nevertheless upset fellow doctors: ‘He was colourful, he was extreme, he was not liked by the profession in general and certainly not by its conservative leaders.’ Edelsten, he elaborated, wasn’t popular with his creditors either because he was a ‘very slow payer’ and was ‘pretty flippant about cash flow’ with a tendency to over-extend himself. Wenkart got the impression that up-market auto dealers gleefully rubbed their hands when they saw him coming. If Edelsten had his chequebook with him when he walked into a showroom, he was likely to drive away in a fancy new vehicle: ‘He’s got a manic streak, there’s no argument.’¹⁷

Dangerous spaces

When Edelsten formally broke with Wenkart after the collapse of Preventicare, his career took a decidedly different and dangerous turn. While continuing to work as a doctor and owner of several GP clinics, he was seduced into the gambling industry. He began gambling in casinos – both legal and illegal – and on horse racing, including race fixing. In his 2011 autobiography, he described these experiences as his introduction ‘to a very corrupt world’.¹⁸

Edelsten’s attraction to the destructive world of heavy gambling revealed other sides to his complex persona. He was undoubtedly a narcissistic-type personality. Corporate governance expert Brain Tayan provides insights into this personality typology. On the one hand, he writes, narcissistic CEOs have an ‘inflated sense of self-importance, and excessive need for attention and admiration, and lack empathy’. But, he cautions, such traits are not dissimilar from ‘confident, dynamic or transformative leaders’. The two typologies are not synonymous, Tayan adds, but it can be hard to tell them apart.¹⁹

Edelsten’s personality straddled this definitional fault line. A noted medical innovator, he had an unmistakable need for admiration and attention, and he was a risk-taker unconcerned about abiding by the rules.

Edelsten was thrilled at trying to beat the odds and projecting an image of the successful gambler. ‘I really enjoyed the fun – and the risks of gambling,’ he wrote. And: ‘Dressed in black leather jacket I could be seen at the races placing large amounts of money’.²⁰ And he was untroubled by the ethics of race fixing. In a revealing passage from his autobiography, he wrote that while he thought ‘the whole thing was illegal’, he was ‘merely following up on an anonymous tip’.²¹ The New South Wales Medical Tribunal later assessed Edelsten as someone who demonstrated ‘a lack of insight into his behaviour’.²² This lack of insight is crucial to understanding Edelsten’s personality. His life would regularly take unpredictable and often disastrous turns, the consequences of which he continually brushed aside.

In 1975, flush with money from the deal with Wenkart and no doubt from gambling, Edelsten decided to open a nightclub. Spending over $1 million, he opened The Centrefold, a flashy establishment in Sydney’s Kings Cross with a capacity to entertain a thousand people. It became ‘a place to be seen’, he wrote. And it fed Edelsten’s swelling ego:

As I strolled around the premises in the first few weeks after the grand opening, attended by models and actresses with the sound of champagne corks popping and the occasional balloon bursting, I felt like a king.²³

How much Edelsten knew about the corrupt world he had entered cannot be gauged. But the success of his club drew the attention of notorious criminal figures. In fact, clubs were a prominent feature of Sydney’s underworld. The year before Edelsten opened The Centrefold, a royal commission had been held into allegations of organised crime in clubs. Justice Athol Moffitt confirmed what many had already suspected; that organised crime had infiltrated registered clubs. The Liberal government led by Robert Askin had turned a blind eye to the problem.²⁴

Edelsten became enmeshed in this world. It brought him into contact with two well-known underworld identities. One was Jack Rooklyn, the poker machine entrepreneur. He had amassed fabulous wealth from his control of 50 per cent of the New South Wales poker machine market. A key figure in the establishment sport of ocean racing, the burly Rooklyn appeared to be untouchable. However, in 1992 he was convicted retrospectively of bribing bagman Jack Herbert, a Queensland police officer, and also Terry Lewis, the corrupt Queensland police chief,²⁵ to protect Rooklyn’s illegal gambling operations in the state.

Abe Saffron, notorious Sydney crime boss, was the other under-world figure to cross Edelsten’s path.

Both Rooklyn and Saffron tried to extract payments from Edelsten to keep him free of trouble, meaning avoiding raids from the police. Edelsten claims he was aware of the awe in which both underworld figures were held, but this didn’t stop him from being enticed into dealing with them. He claims to have had a phone call from Rooklyn but actually met with Saffron. As Edelsten later wrote: ‘When these kinds of people intrude into your life, when they ask you to meet them, you keep the appointment’.²⁶ It’s hard to believe that an enterprising doctor, with a busy practice, was prepared to engage with the likes of Abe Saffron who, for decades, had had allegations of corruption and criminality floating around him like a toxic odor.

Saffron was Australia’s version of Al Capone; a dangerous criminal who was never convicted of anything more than tax evasion. He served one seventeen-month stint in jail. But he was a linchpin in Sydney’s network of organised crime. Hovering around him like vultures were a coterie of corrupt officials – policemen, licensing authorities and none other than NSW Premier Sir Robert Askin, who protected Saffron’s operations in the inner-city suburb of Kings Cross where Saffron owned just about every brothel, strip club and bar. From here, Saffron ruled over a business empire like the head of a Mafia family.²⁷ His criminal activities extended into arson, insurance fraud, blackmail and extortion. He built an impregnable wall around these illegal activities by letting his bovver boys do the dirty work and by having a bevy of police officers on his payroll. Just how important political protection was to this brutal operator remains unclear, with Askin’s role in Sydney’s corrupt underworld attracting conflicting findings.²⁸

In his autobiography, Edelsten claimed that he rejected the demands of both Saffron and Rooklyn, but much of what he says in this book is widely thought to be unreliable.²⁹ Nevertheless, Edelsten claims that Saffron organised police raids on his club because he, Edelsten, was unknowingly operating without a liquor licence. In any event, the club became a burden, so he sold it.

While Edelsten immersed himself in the glitzy, menacing world of clubs and gambling, he was also operating as a respected doctor with on-going ambitions to be a medical entrepreneur. But by now, the risky side of his personality, marked by a self-confidence that he could get away with dodgy behaviour, seemed to have become entrenched. In fact, as early as 1974, Edelsten placed an advertisement in the Sydney Morning Herald seeking a young medical graduate who would be paid to ‘sell services to general practitioners’. This was interpreted as Edelsten seeking to develop a system of kickbacks from GPs to use designated pathology providers. Edelsten was also operating a pathology business – Omnimann Pty Ltd – as a sideline. He could become a ‘pathology provider’ simply by paying his $10 fee to the Health Commission. He was identified by the phone number placed with the advertisement.³⁰ Although kickbacks weren’t made illegal until 1977, it was clearly a shady practice.

In 1976, Edelsten’s association with pathology and the rorting of Medibank was inadvertently aired in a court case. In a financial dispute between himself and another company, it was revealed that Edelsten was operating a pathology company that was extracting nearly $600 000 per month from Medibank.³¹ That Edelsten remained involved in the pathology business after his split with Wenkart shows his astute understanding of the rich pickings to be had as a medical ‘entrepreneur’. Pathology underwent huge growth after the introduction of Medibank. Benefits paid to the industry doubled in the first twelve months of the scheme’s operation. Doctors’ need for a return on the purchase of expensive equipment drove excessive testing.³²

Claims of rorting: Universal healthcare

Despite its initial failure, Preventicare was the medical equivalent of the canary in the coalmine – a harbinger of what was to come when government-funded universal healthcare was introduced several years after Edelsten and Wenkart unleashed their innovation. The Whitlam government introduced Medibank in 1975, which was abolished by the subsequent Coalition government led by Malcolm Fraser. In 1984, the Hawke government reintroduced the scheme, renamed Medicare.

Soon after its introduction, overservicing became an entrenched part of Australia’s publicly funded universal healthcare system. In the early 1980s, official estimates put the cost of overservicing at around 7 per cent of total outlays on Medibank, but others regarded this figure as the tip of the iceberg.³³

Doctors involved in overservicing in the early years of universal healthcare engaged in one or more of several practices: ordering far more sophisticated tests than were warranted; phantom treatments; assembly-line processing; requiring more patient consultations than were necessary; upgrading the level of treatment actually provided; and finding an excuse for conducting a superfluous number of home visits. Doctors asked some patients to sign blank payment forms.³⁴ Yet, to compound the problem of policing, not all such practices necessarily constituted a deliberate attempt to defraud Medibank, unless the scale of the practices was abnormally high.

Overservicing was a complex problem to solve, and successive governments dragged their collective feet in tackling the problem. It was largely a case of regulatory failure. Neither Medibank nor Medicare was designed with a stringent regulatory system to manage the programs. Consequently, there was a lack of legislative powers to deal with abuse of medical benefits. Not surprisingly, therefore, the Health Department was slow to address the problem.³⁵

Attempts to enhance accountability were met by powerful counter-attacks by doctors.

Given the difficulties of reining in the medical profession, health authorities became defensive, preferring ‘printing cheques to claimants in the interests of efficiency rather than in developing expensive programs to contain the abuse of medical benefits’.³⁶ Medical entrepreneurs with high-risk personal profiles filled the regulatory vacuum. It was left to whistleblowers and the media to expose abuses. As revelations spilled out into the media, the public were shocked at the extent of the abuse. Claims that doctors rorted the system and were more concerned with profit than patient care were at odds with the profession’s avuncular image.

Edelsten was in the forefront of developing an integrated medical business model linking general practice and the emerging profession of pathology. Regulations governing pathology contained a convenient loophole. Under the Heath Insurance Act 1973, pathology was only minimally regulated; the main requirement was that, for the purposes of medical rebates, a pathology provider had to be approved. However, gaining approval into the profession was as easy as becoming a member of a sporting club. Application was made via a telephone call to the Health Department requesting the relevant form, which was filled out with payment of a fee of $10. There were no questions asked.³⁷

As a consequence, pathology providers proliferated. By the mid-1980s, at least 3000 were operating across the country, nearly 70 per cent of whom did hardly any pathology at all: ‘The great majority of pathology companies are a mystery to the Royal College of Pathologists’, according to Dr Peter Roache, a fellow of the College.³⁸ The sector came to be dominated by several dozen top providers, and the industry remained throughout the 1980s as ‘basically unregulated by the Commonwealth’.³⁹ Significant loopholes existed for rogue operators.

Just how far Edelsten exploited this system is hard to determine. However, in 1977, he unsuccessfully tried to stop publication of a story in Sydney’s The Sun newspaper that an unnamed doctor had claimed more than $3 million from Medibank. The problem for Edelsten was that the same article referred to the doctor in question as having invested in a nightclub.⁴⁰ Edelsten thought he’d been unjustifiably identified.

If the claims made by The Sun were only approximately accurate, it highlighted the systemic problem of overservicing in Medibank and the lack of attention from the federal government to curb the problem. Overservicing had even been given a name – ‘Medibank rip-offs’.⁴¹ In 1977, no one knew the extent of the problem, but it was assumed at the time to have only been a small number of Australia’s then 20 000-strong medical profession. With only thirty cases ever having been referred to the Commonwealth Police in the first few years of the scheme, the chances of getting caught seemed slim. In all likelihood, Edelsten was a central player in the racket of ripping off Medibank.

Over the next decade, Edelsten cemented his links to the pathology industry and forged ahead with plans to transform medicine from a cottage industry into a slick, lucrative and, in his mind, efficient professional business.

The Liberace of the medical profession

In the mid-1980s, Edelsten hit upon another entrepreneurial innovation and became one of the most significant disrupters in the history of Australian medicine. In 1984, he found a way to break open the cottage industry model of medicine by redefining how GPs delivered services. At the time, all GPs were either solo operators or part of small practices. They were encased in a cultural image of ‘benign father figures, devoted to their patients’.⁴² However, as Edelsten realised, the reality was quite different. ‘Doctors’ surgeries were, to many people’, he wrote, ‘grim, austere places, where they sat on plastic chairs, listening to others coughing and wishing they could get the hell out of there as soon as possible.’ Many were carved out of the front rooms of their family home and were ruled by a 9-to-5 mentality;⁴³ many doctors took Wednesday afternoons off. Outside these strict hours, patients had to wait hours in the emergency department of the local hospital or find a locum.⁴⁴

Edelsten imagined what patients might want from a visit to their GP: ‘I knew that if I offered patients a stylish home away from home, even if it was just for an hour or so, they [patients] would actually enjoy a visit to the doctor’. He introduced to the public the revolutionary idea of the 24-hour state-of-the-art super clinic, staffed with a team of doctors, offering a range of medical services, and bulk-billing their patients from Medicare so that a visit to the doctor was free. But Edelsten added a brilliant public relations touch to his disruptive idea: to make a visit to the GP not just enjoyable but fun.

The first of Edelsten’s super clinics opened in Baulkham Hills in western Sydney in 1984 and expansion of the concept followed in quick time. Importantly, his were the first medical clinics in Australia to bulk-bill patients. Clinics were decked out with a grand piano, accompanied by a pianist, chandeliers and couches made of a pink material resembling mink. Gold-clad hostesses and small robots offered refreshments and educational advice to patients, who were told that ‘if they wait more than 10 minutes to be attended to they are entitled to a free Instant Lottery ticket’.⁴⁵

Edelsten’s model had immediate impact. Patients flocked to the new clinics; passers-by pressed their noses into the windows of the clinics to catch a glimpse of the glitz and the glamour. Edelsten was quickly named the Liberace of medicine.⁴⁶ But opposition to the model was fierce. Traditional family GPs, fearful of losing out to ‘an invasion of medical empires’, bristled that Edelsten was an outsider, a non-establishment upstart.⁴⁷ Up went the cry that the clinics were ‘prostituting’ the profession, that Edelsten was the ‘Hugh Heffner of medicine’.⁴⁸

A more compelling criticism came from advocates of Community Health Centres, who warned that the super clinic model was based on ‘overcare’, rather than preventative health care, and that they were designed to maximise profit from Medicare.⁴⁹ Allegations that some of Edelsten’s clinics saw a thousand patients a day were publicly aired.⁵⁰ Overall, Edelsten’s thirty-two clinics saw 1.5 million patients per annum; he was ‘the busiest doctor in Australia’.⁵¹ His network of clinics was the first clear manifestation of the corporatisation of medicine in Australia.⁵² And he’d developed a model that could reap maximum benefit from exploiting overservicing both through regular contact with patients and through his relationship to the pathology side of medicine.

Criticisms were brushed aside as Edelsten opened more clinics across the eastern states. The expansion was facilitated by borrowed money. Edelsten had a casual relationship with his creditors, as if in his mind the loans were somehow fictitious. Max Donnelly, the bankruptcy trustee later charged with distributing Edelsten’s assets when he declared himself bankrupt in 1987, described Edelsten’s approach: ‘Everyone thought he was a man of great substance but there wasn’t really a lot behind it’, he explained. Donnelly went on to say that Edelsten had built his network of clinics on borrowed money. However, with each new loan, ‘he’d make the first payment and then just didn’t make any more. It was a bizarre sort of scenario’.⁵³

Nevertheless, the success of Edelsten’s super clinics made him rich and famous. While his model was genuinely innovative and would have been successful as a legitimate business, Edelsten continued to be dogged by claims that he was fraudulently exploiting Medicare by overservicing, gouging the system for higher payments than were warranted by continuing to exploit the loopholes in the pathology industry. Health Department records from 1985 show that Edelsten was reaping $5 million annually from Medicare payments; or in excess of $15 million in today’s money.⁵⁴

He began to project his life as a fairytale, which captured even more publicity. In 1988, he married the first of his three wives: nineteen-year-old Leanne Nesbitt. Edelsten was forty-five at the time. That marriage lasted only three years, after which Edelsten moved on to marry twenty-six-year-old Brynne Gordon. He lavished his wives with designer clothes and jewellery. Home was a fifteen-room, $6 million Sydney mansion where Edelsten housed his collection of luxury cars and where, on the sprawling front garden, he kept a helicopter for his personal use. Edelsten and his various wives were instantly recognisable whenever they went for a spin in one of the high-end cars; the personalised number plates were inscribed ‘SEXY’, ‘GROOVY’ and ‘FAMOUS’.⁵⁵ To some, the Edelstens were a gauche couple, and Geoffrey ‘a quintessential Sydney spiv’.⁵⁶ But much of the broader public loved the glimpses the media offered into their lives. Years later, first wife Leanne explained her belief that both she and Brynne were merely part of Edelsten’s business strategy to court publicity.⁵⁷

Attracting publicity was central to Edelsten’s career. He was smart enough to make garnering media attention a key part of his business success. As one commentator noted:

His stock in trade was sensation: the swaggering gesture, the flamboyant action, the bravura venture, all designed to turn heads, create debate, engender controversy and ensure that whatever project he was involved with was front and centre in the public eye.⁵⁸

But he seems to have had no insight into how his craving for publicity fed the reckless side of his personality. Behind the glare of Edelsten’s luminous public image, he was living multiple, separate lives: the dedicated doctor committed to the welfare of his patients; the restless and innovative entrepreneur; the clever fraudster; and the Peter Pan-like figure caught up in his own teenage fantasies.

Edelsten’s fame soared even further when he purchased the struggling Sydney Swans AFL team for $6.5 million, the first private ownership deal struck in the competition. The AFL needed to draw maximum publicity to the Swans in a city dominated by rugby. Ever the showman, Edelsten fitted the bill.⁵⁹

However, buying the Swans was just another scam for Edelsten, as Bob Pritchard, the Swans marketing manager, later explained. At a lavish party held at Edelsten’s mansion on the night he became the Swan’s new owner, Pritchard claimed that, amid the celebrations and the media throng, ‘Geoff said to me Mate, I don’t have any money’.⁶⁰ It was typical of Edelsten’s impetuous